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Hospital Financial Performance Plummets in Q4 of 2016

As headwinds continued to mount in late 2016, community hospitals across the state saw operating margins drop to the lowest levels nearly three years. The median operating margin at an Oregon hospital was -0.1 percent in the fourth quarter of 2016 – a net loss on operating revenues. Meanwhile, median charity care as a percentage of total charges has begun to increase slightly after the post-ACA expansion drop.

The fall in hospitals’ median operating margin to -0.1 percent in the fourth quarter of 2016 reflects a drop of more than 2.5 percentage points from the same quarter in 2015 when it was 2.6 percent. Even with seasonal adjustments, Q4 2016 is the largest operating margin decrease in the past three years.

Charity care totaled $94 million in the fourth quarter of 2016, showing that even in with increased coverage, hospitals are still seeing uninsured patients and those with high deductible health plans. Meanwhile, patient volumes remained stable but emergency department visits increased 2.97 percent as compared with the same quarter in 2015, with 330,135 total visits in the fourth quarter of 2016.

“Oregon hospitals are experiencing headwinds even as the ACA continues to extend coverage to hundreds of thousands of Oregonians,” said Andy Davidson, president and CEO of the Oregon Association of Hospitals and Health Systems. “Operating margins are the best indicator of the financial performance of a hospital based solely on its medical operations, not other revenue streams. As such, this quarterly report shows our state’s hospitals are in a difficult position. Inevitably, the post-ACA trend of positive margins has weakened. Now more than ever policy makers should be cautious in their policy prescriptions both in Salem and in Washington, DC.”

Underlying the drop in operating margin is an upward trend in expenses. Operating expenses increased by over 6% compared to Q4 2015. Operating revenues only increased by 2.5% across the same time period.
Hospitals were responsible for one in twenty jobs in the state according to a study released last month by the Oregon Association of Hospitals and Health Systems. They created over 2,500 new jobs over the past two years and added an additional $1.2 billion in economic output. The economic health of many communities is tied very closely to hospitals and their activities. As such, drops in margins are concerning to hospital leaders.

“Hospitals will continue to manage to the challenges presented by the changing health care landscape,” added Davidson. “Their commitment to their patients and to their communities demands no less.”